BRUSSELS/BUENOS AIRES, Sept 7 (Reuters) - Argentina will regain access to the European Union’s biodiesel market within three weeks after its successful World Trade Organization challenge to Europe’s anti-dumping duties on the fuel.

The European Union will by Sept. 28 sharply lower the tariffs it has imposed on Argentine biodiesel for the past four years after EU member states backed the reduction on Thursday.

The EU in November 2013 set anti-dumping duties of between 22 percent and 25.7 percent on imports of Argentine biodiesel. Argentina had been the main supplier of biodiesel to the EU until then, according to the country’s foreign ministry.

However, the WTO upheld Argentina’s complaint in an appeal ruling in October 2016. The major biodiesel exporter had called the EU measures protectionist and said they cost the country almost $1.6 billion in lost sales per year.

The EU’s case was based on Argentina’s imposition of an export duty on the raw material, soybeans, which it argued allowed domestic producers to “dump” biodiesel at unfairly low prices.

In response to the WTO ruling, the European Commission proposed lowering the duties to between 4.5 and 8.1 percent.

These will apply by the end of the month to exporters including the Argentine arms of Bunge, Cargill and Louis Dreyfus as well as Molinos Rio de la Plata .

“This is very important. It’s what we’ve been hoping for after a four-year negotiation... Now we have high hopes that after this we will be able to sell biodiesel to Europe once again,” said Luis Zubizarreta, president of Argentina’s Carbio biodiesel industry group, although he expressed caution about potential volumes.

DIVERGING WITH US MOVE

The reduction of tariffs will come just weeks after the United States, the destination of 90 percent of Argentina’s biodiesel exports, slapped countervailing duties of up to 64.17 percent on the fuel.

The South American country’s biodiesel producers said the duties would halt U.S.-bound shipments.

EU biodiesel producers, which mostly make the fuel from locally grown rapeseed crops, feared that the measure would have major consequences on the industry.

“This is very worrying. We are doing exactly the opposite to what the United States is doing,” said Yves Delaine, CEO of Europe’s largest biodiesel producer Saipol, subsidiary of French oilseed group Avril, referring to the U.S. decision.

“We take the risk of becoming a spillway for what is no longer accepted elsewhere.”

Euronext rapeseed futures fell to a four-week low after the news.

The European biofuel industry had already been complaining about a separate European Commission proposal to nearly halve the share of crop-based biofuels’ in fuels used in transport by 2030.

DUTIES HOLD FOR INDONESIA

Indonesian producers will still face tariffs of between 8.8 and 20.5 percent when selling into the European Union.

Indonesia, which uses palm oil to make biodiesel, has a case pending at the WTO. The Commission has therefore not proposed lowering import duties of the product.

An EU court also annulled the EU’s biodiesel duties last year, although the EU appealed.

That court said the prices of the raw materials - palm oil or soybeans - were not regulated and that the EU had failed to establish that there was appreciable distortion of the prices as a result of the differential export tax system.

Some trade lawyers say the ruling could have far wider implications and determine future EU trade relations with China.

The European Union, in trying not to treat China as a special case, has said it could use international benchmark prices to work out the costs of producers, for example of steel, to assess whether manufacturers there are dumping product or benefiting from unfair subsidies. (Additional reporting by Luc Cohen and Caroline Stauffer in Buenos Aires, Alissa De Carbonnel in Brussels and Sybille de La Hamaide in Paris; editing by W Simon/Keith Weir)